Spanish Banks Must Add Another €50 Billion to Reserves

The government of Spain will require the country’s banks to add another €50 billion to reserves against bad property assets. The amount was higher than the banks had been expecting and contrary to some hopes that the country would establish a “bad” bank as Ireland has done to be the depository for all the bad loans the country’s banks have made.

According to the Financial Times:

Of the €338bn of property-related assets in the Spanish financial system, about €176bn are bad loans, substandard loans or repossessed properties and land, according to the Bank of Spain.

About a third of the bad loans have already been covered by reserve requirements. The new requirement adds about 28% to the amount the banks will need to provide for. The €50 billion represents about 4% of Spain’s GDP.